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The high failure rate among new business ventures is usually chalked up to the fundamental uncertainty of the process. In actuality, say McGrath and Keil, flawed ways of assessing and managing ventures may account for the disappointing amount of value they generate. Instead of taking the go/no-go approach, whereby a project either advances toward launch or is killed, decision makers should consider a range of alternatives: recycling the venture by aiming it at a new target market; spinning it off to other owners or a joint venture; spinning it in to an established business unit; or salvaging useful elements such as technologies, capabilities, knowledge, and patents.

Firms that excel in value extraction—the “value captors” whose practices and mind-set this article explores—have created formal processes to systematically mine successes, failures, and everything in between. They know that a venture should be treated like a scientific experiment, in which learning plays a critical role. They are ready to seize new opportunities if a venture falters on its original course. They foster networks to promote cooperation and collaboration between established business leaders and venture teams and involve people from throughout the company in the venture review process. They don’t allow financial criteria to dominate the reviews, and they recognize that the best people to launch a business may not be the ones who developed the idea. If your innovation pipeline is dry, your promising projects are being strangled for lack of a speedy payback, or someone else has made a fabulous business out of a slightly altered idea that you abandoned, consider the value captor’s path.

The Idea in Brief

Most companies’ new business initiatives have sorry track records. The number of actual ventures launched is tiny, and their costs far exceed original estimates.

Why these disappointments? Companies move projects forward only when they achieve preset goals. Yet critical elements—such as who the intended users might be—can change along the way. When a project doesn’t meet predefined goals, it’s killed. The company cuts its losses and doesn’t learn from the experience.

There are other alternatives besides launching or killing, say McGrath and Keil. For example, recycle by aiming a venture at a new target market. Spin the project off to other owners. Spin it in to an established business unit that can use it. Or salvage valuable pieces such as technologies, capabilities, and patents.

Squeeze every bit of possible value from your ventures, and you beef up overall return on those investments—making innovation a true engine of renewal in your company.

The Idea in Practice

How to extract more value from your ventures? McGrath and Keil offer these suggestions:

Expand Your Choices

Consider these alternatives to launching or killing a project:

Recycling. You’ve discovered that a venture’s original concept is flawed. Before abandoning it, explore any new opportunities it may have unearthed—such as a different target market that may value the benefits the project offers.

Spinning off or licensing. Your venture’s business model just doesn’t fit comfortably with your company’s. The project might still have a bright future outside your firm. Venture capitalists might want to back it as an independent entity. Someone might want to license its intellectual property.

Salvaging. Your venture hasn’t created a viable product or service. But it contains assets of some value internally. Break up the project. Then harvest its constituent elements—patents, brands, specialized equipment, specific expertise—for use elsewhere in your company.

Treat Venturing as a Discovery Process

To generate returns from all forms of value in your ventures, treat each project as a discovery process, not a go/no-go proposition. Manage each step in the process differently:

Reviews. Include people from units throughout your company that may have future interest in a venture. They can help you determine whether the whole project or some of its elements would best be folded into established businesses.

Launches. Recognize that talents and resources required to test and flesh out a concept may differ enormously from those needed to launch the idea as a business. If they do, assign different people and organizational structures to the launch.

Progress metrics. Make learning the central goal of each venture plan. Validate your assumptions as quickly and cheaply as possible, then revise the plan at key milestones if reality proves different from your expectations.

Funding. Fund only to the next milestone in your venture plan, and position inexpensive milestones early in the process.

Staffing. Include some strong players possessing experience with the unpredictability of new business launches. And methodically transfer people with venture experience to the mainstream organization.

Executives chronically complain about their companies’ sorry track records in creating new businesses, for seemingly good reasons. The proportion of ventures that are actually launched is low, and the costs of not just the failures but also the successes all too often dwarf original estimates. Indeed, some studies have found that a firm typically has to come up with thousands of ideas before achieving even one commercial success.

The high failure rate is usually chalked up to the fundamental uncertainty of the process. Our research suggests, however, that the disappointing amount of value generated by new business development is rooted in flawed ways of evaluating and managing ventures. (See the exhibit “Ten Telltale Signs of a Flawed Venturing Process.”) These are based on a specious assumption: that the only worthwhile outcome of investment in a venture is a new business. Far too little effort is made to extract value from the so-called failures (ventures that don’t meet market, margin, or growth goals), the misfits (ventures that ultimately don’t mesh with the overall corporate strategy), and the unexpected by-products of failures (new technologies, capabilities, or knowledge). By redesigning the process so that choices other than “go” (continue toward launch of a new business) and “no-go” (kill the venture) are fully considered along the way, companies can improve their returns on investment in innovation.

Ten Telltale Signs of a Flawed Venturing Process

1. The plan for an innovation is all or nothing; it looks only at the project as originally conceived and not at underlying capabilities that may be created.

2. No explicit plan has been made to articulate and test assumptions and update the project according to what is learned.

3. The project’s initial approval includes full funding to market launch (with no requirement that successfully achieved milestones confirm the project’s viability along the way).

4. The project is evaluated as established businesses are—on a calendar schedule rather than according to milestones achieved.

5. Project team members are rewarded only if the venture is launched as a business; they suffer negative consequences if the project is killed.

6. Once approved, the project is under pressure from senior executives to achieve large revenues or market share quickly.

7. The project is being managed in a “skunk works,” isolated from other parts of the company.

8. Although they may have a great track record in the core business, team members have little experience with uncertain or ambiguous situations.

9. The CEO and senior executives publicly maintain that the project will compensate for core business performance shortfalls in the near term.

10. Progress in achieving the plan’s goals is the only way to measure project benefits. Intangible assets, new opportunities uncovered, or platforms on which future ideas could build are neither identified nor monitored.

Alternatives to go and no-go include recycling the venture by aiming it at a new target market, spinning it off to other owners or a joint venture, spinning it in to an established business unit, and salvaging useful elements such as technologies, capabilities, knowledge, equipment, reputation, network connections, and patents.

Our conclusions are based on extensive research into the corporate venturing process that we conducted individually or together over the past 16 years. The dozens of companies we studied include 3M, Air Products and Chemicals, Deutsche Telekom, DuPont, Hewlett-Packard, IBM, Intel, Microsoft, Nokia, Siemens, Swiss Re, and Texas Instruments. We observed that firms that excel in extracting value from their ventures have created formal processes to systematically mine both successes and failures. This article explores the distinctive mind-set and practices of these value captors.

The Go/No-Go Approach

Procedures for new business development that call on managers to make go/no-go decisions regularly during the life of a venture became popular in the early 1990s. They typically divide the process into a handful of stages: idea generation, preliminary investigation, making a detailed case for the proposed business, development, testing, and business launch. At the end of each stage a designated group of reviewers evaluates the venture’s progress in achieving goals that were spelled out in advance and decides whether the venture should be allowed to move to the next stage. One of the main attractions of this approach is that it provides a disciplined means of winnowing out less-promising, riskier projects sooner rather than later. Colossal failures—including Motorola’s Iridium satellite phone project and Exxon’s misadventures in oil shale—are a testament to the need for such a mechanism.

A fundamental flaw in go/no-go decision making is the assumption that many critical elements of the future business can be defined in advance. This presumes that the venture team can specify at the outset who the intended users are, what benefits they will receive, how the business will be competitively positioned, and what should be included in a detailed list of “must have” and “would like to have” features. This kind of thinking overlooks the critical role of learning. As a venture progresses, its team often discovers that the offering appeals to a different set of users or that the desirable or deliverable benefits have changed, making it necessary to revise the competitive positioning of the business.

Ventures should be treated like scientific experiments, which involve identifying gaps in knowledge, developing a hypothesis, designing a test, conducting the experiment, and evaluating the results. If the hypothesis is supported, further research along the same lines can be undertaken with greater confidence. If it is not, the scientist will reflect on the possible reasons and then either stop or redesign the experiment. Even a hypothesis that is not borne out can be valuable, because it offers new insights.

Budget approval processes that require proponents of a new business idea to commit to a return on investment (or net present value) goal inhibit managers from approaching ventures in this fashion. Everyone is forced to focus on success or failure in achieving a specific business outcome rather than on insights arising from the hypothesis that led to the venture. It makes much more sense to focus on the option value of a venture—the value of the opportunities it may open up, not all of which are known at the outset.

The experience of a multinational financial services firm illustrates the problems with the go/no-go approach. In the late 1980s this company formed a venture to enter the emerging market for information on household purchases. The plan: In return for discounts and other benefits, supermarket customers would use affinity cards at checkout that would allow their purchases to be tracked. The financial services company would aggregate the data and sell them to large packaged goods manufacturers for use in fine-tuning promotional offers. The company spent $130 million to launch the program throughout the United States. Its key mistake was trying to sign up the maximum number of cardholders nationwide rather than trying to achieve critical mass in individual local markets—which, as it subsequently learned, was what mattered to packaged goods manufacturers.

When a crisis in another division caused a cash crunch, the company’s executives decided that they didn’t have the resources to develop the venture into a viable business. In 1992 they simply shut it down, selling the technology and other assets for a pittance and suffering a huge loss. As a result, the company missed out on an enormous opportunity. Today packaged goods manufacturers spend approximately $36 billion annually on trade promotions in the United States, according to various industry estimates. If the company had considered other options—such as a joint venture with a software or information firm that had more experience in the field—it might have established a formidable position years before competitors entered the market and might today have a business with billions of dollars in revenues. At a minimum, it could have used the venture’s discoveries (such as data compression algorithms) to expand or enhance its mainstay lending and credit card businesses or, alternatively, it could have licensed them to others.

Overlooked Choices

Let’s now examine in greater detail why several options available to any company involved in venturing are so often disregarded.

Recycling.

In the course of finding out that its original concept is flawed, a venture team sometimes discovers another promising possibility. Recycling involves redirecting a venture to focus on the new opportunity. Often the original team remains intact. However, the venture’s objectives, scope, and target market are altered, and as a result, new capabilities may be needed.

Of course, some legendary entrepreneurs achieved success precisely because of their willingness to change course when the idea they were pursuing ran into trouble or a more promising opportunity emerged. But established large companies, with their systems, bureaucracies, and fear of throwing good money after bad, are radically different animals. The pressure to meet budget or achieve a plan’s goals may cause a venture team to fixate too early on specific target markets or opportunities.

Value captors, in contrast, understand that the ability to capitalize on what a venture team learns along the way has to be built into their management processes. They realize that before abandoning a venture, they should explore any new opportunities it may have unearthed. As Thomas M. Connelly, the chief innovation officer at DuPont, observes, “It is important to recognize that most new ventures go through radical redirects along the path to success.”

Spinning off or licensing.

A venture may turn out not to be a strategic fit. In some instances the customer set or business model differs too radically from that of the parent company. In others the opportunity ends up being too small to justify the resources needed to develop it. Nonetheless, such projects may have a bright future outside the company. Venture capitalists or hedge funds might be interested in backing them as independent entities. Other companies might be interested in them as joint ventures. And even if an initiative has no future as a stand-alone business, someone might want to license its intellectual property.

Why do firms pass up such opportunities? Corporate managers may be reluctant to spin off a venture for fear that if it succeeds, questions will be raised about how they could have missed such a good prospect. Sometimes companies are nervous about parting with intellectual property and assets that competitors might use against them. In other cases they simply lack the capabilities required to spin off ventures or license their know-how. One way to overcome such hurdles is to create a dedicated unit with the expertise, connections, and mandate to engineer spin-offs and license know-how. Such groups exist at Microsoft and Siemens, for instance.

Spinning in.

Sometimes, when basic elements of a venture’s concept have changed along the way, launching a stand-alone business no longer makes sense even if it is a strategic fit and has developed or nearly developed marketable products and services. The target market may not be sufficiently novel or big to justify creating a separate business, and the venture may now need different capabilities from those originally envisioned. Value captors identify where else in the corporation the idea might have merit and move it there. This may sound like an unexceptional feat, but, surprisingly, it rarely happens.

Why? The managers of established businesses and those of ventures may not know enough about one another to recognize a match. Even when they do, the business managers sometimes fear that they are being offered the leavings of a failed program. Sometimes they resist adopting anything that was “not invented here.” And some fear the hassles of trying to meld a venture with a business that has a different scale and rhythm and, as is often the case, distinct systems for accounting, reporting, budgeting, and managing people.

Value captors employ consistent back-office systems across their organizations so that combining parts in new ways is straightforward. In addition, they foster networks that help established business leaders and venture teams to form personal relationships and keep abreast of areas of mutual interest. One head of a venture group set up an exchange where anyone in the company could post a technical problem and others could offer solutions. The exchange was an eye-opener for venture teams: They’d had no idea just how many solutions they had developed that could help other units in the company.

Senior-level involvement in the spin-in process is also extremely helpful. When IBM decides to fold a venture in its “emerging business opportunities” program into an established operation, J. Bruce Harreld, the company’s senior vice president for marketing and strategy, gets personally involved.

Salvaging.

Of course, some ventures are failures in the sense that they do not create viable products or services. Even these projects, though, may contain assets of some value internally. Unlike spinning in, which involves moving a venture more or less intact to some other part of the organization, salvaging breaks up the venture and harvests its constituent elements for use elsewhere in the company. These might include intellectual property such as patents, processes, and brands; specialized equipment; specific kinds of expertise; network ties; and the ability to build and lead teams under highly uncertain conditions.

In companies where return on investment or payback time drives everything, there is often little incentive to search for the gems hidden within a venture that has badly missed its targets. The leaders of such ventures have typically lost so much credibility that they are not taken seriously. And, unfortunately, in the final days of a failing venture many good people on the team jump ship, taking with them knowledge of the gems worth salvaging.

Value captors, however, pay attention to what is being learned in the venture all along the way. (See the exhibit “The Value Captor’s Process.”) Their senior executives make such learning a priority in the review and funding process. In addition, some value captors have formal processes for taking stock of potentially valuable assets developed by failed ventures and identifying where in the company they could be deployed. At Nokia this effort is led by a venture board, which consists of senior corporate executives and the head of the venturing unit. The browser technology that Nokia’s core mobile phones business group now uses in its products came from such a postmortem.

The Value Captor’s ProcessThe conventional venturing process is often depicted as a funnel: Lots of proposals enter at the top, and only a handful emerge from the bottom. In contrast, the processes used by value captors open up more options at each stage of the venture’s progress and involve more players in different functional and business groups across the corporation. Set strategic boundariesLeaders of the company need to make clear which customers to target and how the organization intends to compete. Procter & Gamble’s declaration “We will provide branded products and services of superior quality and value that improve the lives of the world’s customers” establishes enormous scope for activity but also sets limits (consumer products and services only). Define acceptable and unacceptable opportunitiesThis step narrows the focus for venture opportunities much further. DuPont will sell medical applications, including implants, to the health care industry but will not sell materials to be used in implants made by other firms. Identify key areas of opportunityOne or more groups in the organization generate an array of specific ideas for new businesses, which go through a screening process. Air Products’ analysis of trends in global sourcing, industry consolidation, and remote-monitoring technology resulted in a venture to develop automated methods of replenishing chemical and fuel products.Create ventures as temporary incubatorsChartered ventures should be viewed not just as potential businesses but as temporary entities for developing technologies, capabilities, and other assets so that (1) they can be changed as assumptions are proved or disproved and different opportunities are discovered, and (2) the best ways to mine value are considered. A venture should remain small during early phases to make changing course easier and to limit losses.Monitor progress with milestone reviewsThese reviews, which should involve people from different parts of the company (established businesses, HR, R&D, IT, finance), consider alternatives to go/no-go. They determine the best next step for a venture. Criteria for review will differ depending on the stage of the venture. Value extractionA venture that won’t proceed in its current form toward the launch of a business or be recycled into a new and different one can be mined for value by spinning it in (folding it into an existing business), spinning it off, or salvaging its skills, technology, applications, or other assets for use elsewhere in the company.

Avoiding the Go/No-Go Trap

Managing ventures as open-ended, iterative experiments rather than taking a go/no-go approach requires different relationships between ventures and the rest of the company and new ways of measuring progress, making funding decisions, and staffing projects. Let’s look at these one by one.

Organizational ties.

When locating their ventures, companies often make one of two common mistakes: They either isolate the projects from established businesses totally or they integrate them too tightly. In contrast, value captors strive to strike a balance between giving a venture enough autonomy to thrive and maintaining links with the rest of the corporation sufficient to facilitate a constructive two-way flow of ideas and to allow the whole venture or some of its elements to be folded into established businesses if need be. They accomplish this by involving other parts of the organization in the review process and, in some cases, in the launch of the venture as a commercial business.

The reviews.

The process for reviewing ventures should encourage participants to consider a full range of choices for proceeding—which the go/no-go approach often does not. Typically, those entrusted with reviewing a venture in the go/no-go scenario are senior executives, such as the chief technology officer and the chief financial officer, and the committee that evaluates capital expenditures. For such a time-pressed group, a no-go decision is often the most expedient way to deal with a struggling venture that isn’t meeting an objective—a technical goal, a sale to an initial customer, spending limits, or, most important, the schedule for generating a payback.

Value captors do two things differently. First, they make sure that people from units throughout the corporation that have a potential future interest in the venture are involved in the review process. Second, financial criteria do not dominate their deliberations.

At Texas Instruments, venture boards are made up of people from core businesses, R&D, marketing, and sales. The core businesses participate because discoveries in the ventures may have implications for their markets. R&D is involved to assist the venture with any technological challenges and to keep tabs on technologies in the pipeline that may be relevant to future opportunities. Marketing can help identify how the venture’s discoveries might satisfy customers’ needs—including some the venture team may not have considered. Account representatives may be able to find customer sponsors for the venture’s activities.

How Texas Instruments Discovered a Promising Business

The way Texas Instruments entered the market for radio frequency identification (RFID) technology illustrates the benefits of the discovery-driven approach to new business ventures. In 1989 Jerry Junkins, then TI’s CEO, launched a strategic initiative whose aim was to transform the company from a manufacturer of commodity electronics into a much more creative producer of innovative, higher-margin products. As part of this drive, some senior executives proposed investing $50 million to commercialize R&D efforts in RFID.

Junkins, however, was uncomfortable with committing such a large amount to an emerging technology. An investment to develop a major application—tracking airline cargo, for example—would almost certainly have caused TI’s executive committee to expect a respectable return on investment within three years, which Junkins felt was unrealistic. So Junkins and Dave Martin, a TI vice president, requested that a team test the technology in a small market with customers who would be willing to pay for a solution to a real problem.

The team came back with a proposal to develop an RFID-based system that would enable European farmers to prove their compliance with regulations limiting the number of animals per hectare. Had TI based its decision to invest in the venture on whether the market size and potential payback were sufficiently large and the level of risk sufficiently low (common criteria in the go/no-go approach), the company probably would not have funded the initial effort. Instead TI’s leaders saw it as a contained experiment for testing hypotheses easily and cheaply and decided to move forward.

The animal-tracking experiment was successful in that the venture started to generate revenue and gain traction in a new area for the company. The team also learned a great deal about how the technology worked in the field and what improvements customers sought. Emboldened, the team asked Junkins for a significant investment to develop new applications—but the timing wasn’t fortuitous. TI’s core semiconductor business was having trouble keeping up with a surge in demand and needed to build expensive new capacity. As a result, Junkins wanted the venture to continue cautiously.

This decision prompted the team to change its business model: For the time being, TI would leave the job of designing applications to value-added resellers and systems integrators, to whom it would supply RFID chips. During this phase the chips’ growing sales volume caused unit costs to fall; standards began to emerge; and awareness of RFID technology spread. As a result, TI was receptive when a General Motors executive called on Martin for help in addressing the vexing problem of car theft. GM wanted to know if there was a way to embed an RFID chip in a key so that no key without the chip could start the car. The ignition immobilizer, introduced in 1993, was TI’s first major RFID application.

Others followed, including highway toll collection systems and Exxon Mobil’s Speedpass, which allow people to make credit or debit card purchases without having to sign a receipt or swipe a card through a reader. It’s safe to say that if TI had not taken a discovery-driven approach to developing the business, it would not have a leading position in a highly promising market today. The applications that turned out to be significant profit generators were not on the original list of possibilities. Had management blessed the initial proposal, the venture would probably have started by focusing on a big market, where the costs and challenges would have been great—making it likely that the venture would have been either terminated or an expensive failure.

Other companies, such as Nokia and Fortis, the Benelux-based financial services giant, add to this mix representatives of departments such as human resources, legal, and intellectual property and managers of other ventures. The perspectives of peers from other ventures are important because they understand the challenges of breaking into innovative markets. HR can offer insight into future staffing requirements, which will obviously vary depending on how the venture evolves. In addition, HR can help a company retain the talented people on venture teams by working to overcome the perception that participating in ventures is a major career risk. The legal and intellectual property departments can ensure that the venture’s innovations are protected if they are brought to market and can also see how the innovations are relevant to other opportunities of interest to the organization.

The launch.

Companies with go/no-go processes often think that the scale-up and commercialization stage is just a matter of adding resources to the existing project. Because they view participation in the launch and running the business as just rewards for the people who successfully developed the project, they often entrust commercialization to the same team. Value captors such as Air Products and IBM, however, recognize that the talents and resources required to test and flesh out a concept may differ enormously from those needed to launch it as a business. They also understand that the launch may require different people, a different organizational structure, and, in many cases, the assistance of existing businesses.

At Air Products, drawing from all the company’s capabilities to solve customers’ problems is central to the strategy. The company therefore mandates that new ventures within its core chemicals and materials areas be commercialized by an established business group. When a venture is ready to be launched, it is transferred from the incubator organization to the group deemed best equipped to assist it in terms of assets, relationships, and market insights. Projects with business models or technologies that differ significantly from those of the established enterprises are often launched in joint ventures with partners that can provide capabilities Air Products lacks.

At IBM, the goal of the emerging business opportunities program is to create radically new businesses, so it stands to reason that the company does not entrust the launch of EBOs to its established enterprises. However, it does recognize that the latter may have resources critical to a successful launch. So when an EBO is ready for launch, IBM transfers those resources—which may include whole units—to the venture.

Measuring progress.

Given the uncertainties involved in starting new ventures, it is remarkable how many companies persist in evaluating their progress according to the achievement of detailed goals that were established at the outset and were based on yet-to-be-proven assumptions. There are three problems with assessing a venture’s progress in this manner. First, it’s common for the assumptions underlying a goal to be wrong or circumstances to change. Second, as a firm makes investments on the basis of a plan, it all too often begins treating the plan as immutable, forgetting that it was based on unproven assumptions. This makes it easy to overlook evidence that contradicts those assumptions. Third, because success is defined as meeting the plan’s goals, deviating from the plan is interpreted negatively, which discourages people from challenging its validity. The bottom line: “Making plan” as a measure of a venture’s success inhibits learning.

When making investments on the basis of a plan, a firm may begin treating the plan as immutable. This makes it easy to overlook evidence contradicting the initial assumptions.

An alternative to the go/no-go approach is to make learning a central purpose of the venture plan. In a discovery-driven plan, measuring progress consists of validating assumptions as quickly and cheaply as possible and then revising the plan as necessary at key milestones. (See “Discovery-Driven Planning,” by Rita Gunther McGrath and Ian C. MacMillan, HBR July-August 1995.) Assumptions are documented, debated, and monitored on an ongoing basis. When reality proves to be different (which it almost invariably does), the venture team can revise its assumptions collectively. Comparing original assumptions with later discoveries is often the basis for redirecting or changing the scope of a venture and can significantly increase the odds of achieving success.

Funding.

When first approving a venture, some companies unwisely fund it to commercial launch without building in checkpoints that will prompt a change in course if something new is learned along the way. Companies often make this mistake when a venture is targeting a market in which the first-mover advantages appear to be significant, tempting executives to pour resources into the project so that it can proceed at maximum speed. In other cases managers wrongly believe that a venture can be treated like a conventional line extension with predictable funding needs. Full funding can have negative consequences: It can cause a team to escalate its commitment to a single course of action—encouraging the team to be spendthrift—when it should be striving to keep all its options open. One of the commandments for ventures should be “Fail cheap, fail fast, move on.”

Ventures should be thought of as real options: investments that give you the right but not the obligation to participate in an opportunity later on. A real option is valuable when you can find a way to minimize the amount and downside risk of your investment and simultaneously gain access to a potentially significant opportunity. This approach encourages companies to conduct a series of low-cost experiments to test hypotheses—rather than risk big investments on a single unknown—which improves the odds of discovering a high-potential idea or application.

This way of thinking can be embedded in the venture-funding process by applying two principles. The first is fund only to the next milestone. You can think of this as buying an option on the achievement of the milestone, at which point you can choose to continue, to stop, or to take an alternative action. The second principle is position the inexpensive milestones early in the process (to the extent that you can) and defer the more expensive or fixed commitments as long as possible. This saves money if the venture is terminated and ensures that by the time you incur large sunk costs, you are doing so with more knowledge.

Staffing.

We’ve observed three widespread employment practices that make it difficult to reap the full benefits of ventures:

Overpopulating a venture team with strong performers in a core business who have little experience in dealing with the unpredictability of ventures. Consider a Six Sigma black belt—an expert in stamping out deviations from plan. Chances are that such a person would be so disturbed by a venture’s changes of course that he or she would overlook the new opportunities they often reveal.

Staffing the team primarily with volunteers who want to work on projects they find interesting. These enthusiasts can become too attached to a product or a technology, making them resistant to recycling the venture if the initial concept proves flawed. They may also be unwilling to move beyond the venture unit. Allowing the venture organization to be a career destination, however, can impede the transfer of its intellectual capital to other parts of the company.

Unintentionally discouraging the best, brightest, and most ambitious from working on ventures. In a culture where making plan is a mark of success, high performers avoid projects that seldom deliver reliably or predictably. This may lead to second-class status for venture teams, which can make establishing productive relations with other parts of the company and spinning in or salvaging ventures more difficult.

Value captors engage in four people-management practices that differentiate them from their less effective counterparts.

They make sure that the venture group includes some strong players who have experience with the unpredictability of new business launches and can help neophytes learn the art of managing ventures.

They consider venturing experience a career asset; most make a stint in the venture group a requirement for rapid advancement.

They stipulate that such stints are finite and methodically transfer people with venture experience to the mainstream organization, where they can put their valuable knowledge, skills, and capabilities to work rejuvenating the core business.

They are careful to distinguish between the performance of an individual on the venture team and the outcome of the venture. This approach helps in retaining good people who might otherwise feel stigmatized by the failure of a venture and leave.

Air Products is a company that employs these practices. Its director of new business development, Ron Pierantozzi, is a 30-year veteran of the firm with extensive experience in creating new businesses. To obtain a broad range of expertise and perspectives, he recruits people with diverse backgrounds—from engineers to entrepreneurs to former government officials—both inside and outside the company. It’s made clear at the outset that they will be redeployed in the established businesses within four years. When the established businesses are considering candidates to fill positions, they view experience in Pierantozzi’s group as a big plus. And association with a failed venture is no stigma: Air Products is disciplined in differentiating between people who failed and ventures that failed.• • •

Becoming a value captor can be a major undertaking. Tantamount to a change management program, it can take five years or more to complete. Of course, that depends on your starting point. If you don’t even have a dedicated business development unit that operates like a venture capital group, you’re probably at square one.

What are the signs that you should consider taking this journey? If your innovation pipeline is dry, if promising projects are being strangled because they have not delivered a payback in two years, or if a competitor has made a fabulous business out of a slightly different version of an idea that you abandoned, explore the value captor’s path. That path is defined: The tools—for writing a discovery-driven plan, for conducting reviews, for figuring out how to test assumptions and draw conclusions from those tests—are readily available and fairly easy to use.

What’s much harder is altering conventions and structures that drive how people behave. It can be extremely difficult to convince managers that failing cheaply and learning from it is a great outcome in a highly uncertain environment when they have been trained to believe that failure to make plan or hit the numbers is bad. Similarly, rerouting career paths, forging personal networks, and reforming the budget process along the lines outlined above are easier said than done.

Finding the right manager to champion this transformation can also be a big challenge. The ideal person will have a proven track record in creating businesses, deep knowledge of the company, and strong relationships throughout the organization. He or she must be entrepreneurial yet command respect across the board and must also have the confidence and the authority to stand firm. For these reasons, companies should choose insiders for the job if they can. Sometimes they can’t; roughly a third of the companies we’ve observed went outside.

Even if the path to becoming a value captor is a long one, you don’t have to wait until the end to reap substantial benefits. Though IBM launched its emerging business opportunities program in 2000, EBO has only now become fully embedded in the company, IBM executives say. Yet by 2003 the enterprises launched through the program were collectively generating billions of dollars in revenues.

Value captors recognize that the number of new businesses launched and the revenues and profits they generate, although important, are not alone the measure of success: The established businesses must wholeheartedly subscribe to the discovery-driven approach to innovation. When this happens, learning—and capitalizing on learning—become as important as making the numbers. When ventures and established businesses work together to suck every bit of possible value from business development projects, the overall return on those investments improves dramatically and innovation becomes a bona fide engine of organizational renewal.

Rita Gunther McGrath, a Professor at Columbia Business School, is a globally recognized expert on strategy in uncertain and volatile environments. She is the author of the book The End of Competitive Advantage (Harvard Business Review Press).

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